One reason folks aren't charged up over electric vehicles

When Seattle homemaker Wendy Lo needs to charge her electric-powered Nissan Leaf, she hunts for a library or community center where she can plug in at no cost. "As long as you plan your trip it will be free," Lo says.

James Echols uses the idea of free fuel to sell Nissan Leaf electric vehicles at a dealership in downtown Los Angeles. He doesn’t tell customers that the Leaf costs nothing to run, exactly. Instead he tells them about the many places they can charge up for free, including at 11,000 Nissan dealerships across the country, and at numerous public facilities, like schools, universities and hospitals.

Run your car for free. It’s a powerful sales pitch. But it also might be one reason why electric vehicle sales are still stuck in neutral. There are currently about 165,000 electric vehicles on the road, just a fraction of a percent of the 254 million passenger vehicles in the United States. The sales of the plug-in electric vehicle rose from 12,970 units in 2012 to 47,694 units in 2013. Although the 2013 sales were more than triple the sales from the previous year, they are far below the rosy estimates of 2011 when Obama aimed for one million plug-in electric vehicles by 2015.

The problem is the lack of charging stations. Despite the fact you can charge up for free in many places, prospective buyers don’t appear convinced that the network of charging stations is large enough. Meanwhile, investors are wary of pouring money into charging stations until there is a critical mass of electric vehicles on the road.

And there’s another wrinkle: Even if there were enough electric vehicles out there, it’s a tough sell to convince investors that charging stations could actually make money. After all, electric vehicle owners have been spoiled: thanks to all of those schools and hospitals, they’ve gotten used to running their vehicles for next to nothing. And charging-station owners have yet to figure out what their proper business model should be.

"Ultimately, someone is going to be paying for charging services,” says Michael Farkas, chief executive of the Miami Beach, Florida,-based Car Charging Group, Inc., which installs and manages charging stations. "Whether it is the property owner or car manufacturer, we are all here to make money."

So far, it’s been a bumpy road for the charging stations. In October, the clean electric transportation and storage technology firm Ecotality and its 12,560-strong network of charging stations, which operated under the name Blink, went bankrupt. The company’s problems included its inability to get customers to pay enough to keep the firm solvent. The Blink network was later acquired by the Car Charging Group for $3.3 million.

Israeli electric car company Better Place went bankrupt in May. It had tried to pioneer a new model in which electric vehicle drivers would swap out a spent battery for a fully charged one at a network of charging stations.

Traditional filling stations run on a simple logic. "We pay $30,000 to BP for 8,000 gallons of gas,” explains Abel Blanco, a manager at an Arco station near downtown Los Angeles. The station adds 10 cents to the wholesale per-gallon price. On a recent day, that was $3.75. It’s a basic business model understood by drivers around the world.

But for electric vehicles, no such standard arrangement exists. Some stations charge by the minute, others by the kilowatt hour of power consumed. Electricity prices can also vary wildly from state to state, with a kilowatt hour going for as little as 3 cents in Washington state and as much as 17 cents in Hawaii.

Currently, charging station operators have a perverse incentive to charge as little as they can for the service: The more it costs, the less reason drivers have to switch from traditional gasoline-powered cars.

"You need an incentive cost,” says Dimitrious Papadoganas vice president for marketing at Campbell, California-based electric vehicle charging company ChargePoint, Inc. “So if you are going to charge someone the equivalent or more than what gas costs, you are not going to have people buying electric cars.”

Just accounting for the price of power, electric vehicles are considerably cheaper to operate. In Los Angeles, it costs about $3.48 to drive an electric vehicle for 100 miles, while it costs a reasonably efficient gas-powered car around $16.24 (paying $3.75 a gallon) to cover the same distance.

But to the operator there’s more to the cost of a charge than the electricity that powers up the car. The installation cost of a charging station can be anywhere from $50 to $80 a foot, meaning that a single charging station can cost up to $15,000 in some areas. The costs arise from having to dig up concrete and upgrade electrical panels to take on the excess power needed for charging vehicles. The electric panels also need to have space for a 240 volt 40A 2-pole circuit breaker, which ensures that the electrical circuit is not damaged by an overflow. The expense is also due to lower economies of scale: most businesses that purchase electric-vehicle chargers only buy two or three stations per site, while most gasoline retailers install many more pumps.

Even the some of the biggest charging-station operators can’t agree on a business model. ChargePoint sells hardware to customers and lets them set the cost of charging. Car Charging Group charges by the minute. Car Charging Group, Inc. is about to announce a $149.99 monthly all-you-can-eat charging plan in a bid woo returning customers.

And then there’s the free charge issue. Many well-meaning city governments and even some private employers have jumped on the electric-vehicle bandwagon to offer charging stations to their employees at no cost. Shopping malls and big box retailers have also begun to offer free charges as a way of enticing shoppers to linger. In Los Angeles, there’s even a mobile app, PlugShare*, that informs whether a nearby charging station is free or not.

“If I am a retailer owner, I would make the first two hours of charging free in order to attract customers,” says Charge Point’s Papadoganas.

*CORRECTION: An earlier version of this article misidentified the name of an app for charging-station users. The text has been corrected.